Performance bond with bad credit

[Steve Carlson]

I have been getting turned down left and right for a $70,000 performance bond I need. I have a 640 credit score and need this bond!

[Admin]

Unfortunatly, you will not be able to obtain a performance bond in the current bond market due to your personal credit. There are no bad credit surety bond programs for contract bonds right now.

The sureties will not want to go too deep into the underwriting for a $70K bond, so it would be based on your personal credit. However, the sureties would look into the underwriting of your account further if you were to set up a bond line so they knew they could possibly write other bonds for you in the future. It is possible to get a bond line set up if you have financially strong business financials and some decent personal wealth as well.

[evans619]

The possibility exists that someone may write the bond with collateral (Irrevocable Letter of Credit).

[Admin]

The possibility exists that someone may write the bond with collateral (Irrevocable Letter of Credit).

Evans,

I agree it is possible to find a surety to write it with a letter of credit as collateral. However, with a ILOC they would in a sense be partially or fully bonding themselves and still be paying for their bond premium, but yes it is possible.

However, the reason I say it is not probable is that fact that I don't think there is an agent in the country that will go through the trouble of trying to find the market AND have to deal with ILOC for this small bond amount.

The principal is just short of what sureties look for on the contract programs that are underwritten strictly on personal credit. I think it is in their best interests to simply get their credit up to about 670-680 and then set up a bond line based on their personal credit. Otherwise they and their future agent may be wasting a lot of time unnecessarily.

[evans619]

While the contract price is not going to make sureties and/or producers do cartwheels, it may end up worthwhile in the longrun.

You state: I agree it is possible to find a surety to write it with a letter of credit as collateral. However, with a ILOC they would in a sense be partially or fully bonding themselves and still be paying for their bond premium, but yes it is possible."

The contractor would have to decide whether or not the potential profit on the job was worth the price of obtaining the bond. While collateral is not the greatest answer, it is a possitive answer that may or may not work out.


"However, the reason I say it is not probable is that fact that I don't think there is an agent in the country that will go through the trouble of trying to find the market AND have to deal with ILOC for this small bond amount."

I definitely disagree with you. First, lets look at the dollars and cents. $70,000 contract price ... non standard rate of 3% equals a premium of $2,100.00. The surety pays a commission of $???? (depends on surety) ... is it worth it? Not the worst commission in the world, not the greatest ... but what else do we have if we are successful .. an incredibly greatful contractor who may refer people to us, or work to become bondable in a more normal way.

I would approach this as having two goals: 1) immediate bond need 2) work with contractor to get them bondable on more normal terms.

"The principal is just short of what sureties look for on the contract programs that are underwritten strictly on personal credit. I think it is in their best interests to simply get their credit up to about 670-680 and then set up a bond line based on their personal credit. Otherwise they and their future agent may be wasting a lot of time unnecessarily."

You are correct, but this contractor doesn't have the luxury of time on his side, he needs the bond now. As to wasting time, I agree.. if the contractor is not cooperative, no sense working with him, no sense wasting time. If he is cooperativ e and willing to work as hard for himself as you plan on working for him, than I feel you are missing an opportunity by carte blanche saying he's not bondable.

All of this is just my opinion and of course subject to question riducle and whatever else ...

[Admin]

All of this is just my opinion and of course subject to question riducle and whatever else ...

Evans,

I think what you posted is a completely valid argument. I wouldn't belittle what you have to say by offering others to riducle your statements.

However, I still disagree due to personal experiences.

I am always looking to do what is best for the clients interests. In this case if time is a factor then the last thing you want to deal with is a letter of credit. It seems that most people can not get the letter of credit in the format required by the surety. It usually takes several times to get done, something that eats away lots of time. If the job has been awarded and only the final bond is now required then it may be option persued by some agents (myself included a couple years back).

The reason I say to clear up the credit and come back is so it will save all parties future headache. You state that if you help out the client now then you will most likely recieve future bond requests, agreed. However, with the current bond market I do not think it is wise to squeeze by bond to bond w/ a letter of credit. This will most certainly have the agent applying for the bond from surety to surety, closing doors for future markets when the client is in better financial standings. As we both know the surety bond market is not that large, everyone seems to know eachother and shopping around an account is something that could negatively impact their future bonding capabilities. I strongly believe that it is best to improve their current situation for now and the future.

By the way Evans, who are you employed by? We appreciate all of the input you have posted on our forum. Please feel free to start a new thread for discussion or continue on another at anytime.

[evans619]

"I wouldn't belittle what you have to say by offering others to riducle your statements."

I was just kidding about ridiculing, etc... some forums, you basically post and duck!!!!! I like this forum a lot, I am glad I stumbled on it.



"I am always looking to do what is best for the clients interests. In this case if time is a factor then the last thing you want to deal with is a letter of credit. It seems that most people can not get the letter of credit in the format required by the surety. It usually takes several times to get done, something that eats away lots of time. If the job has been awarded and only the final bond is now required then it may be option persued by some agents (myself included a couple years back)."

Why a couple of years back and not now? Hey, I agree, this is not going to make anyone rich, and may end up wasting time ... however, I think you can get a feel for how cooperative the contractor is going to be, and I think you can explain the facts of life -- letter of credit format, cost, needed cooperation ... and see the reaction. He starts balking or the bank starts balking, so be it .. NEXT....


"The reason I say to clear up the credit and come back is so it will save all parties future headache. You state that if you help out the client now then you will most likely recieve future bond requests, agreed. However, with the current bond market I do not think it is wise to squeeze by bond to bond w/ a letter of credit. This will most certainly have the agent applying for the bond from surety to surety, closing doors for future markets when the client is in better financial standings. As we both know the surety bond market is not that large, everyone seems to know eachother and shopping around an account is something that could negatively impact their future bonding capabilities. I strongly believe that it is best to improve their current situation for now and the future."

I think you misunderstood what I meant ... I am not saying let's get letters of credit on every bond and for forget getting you bondable, what I am saying is we have two problems that need to be solved ... 1) the immediate bond need .. whether we like it or not, they bid a job and need a performance bond ... sometimes it is not their fault .. sometimes an insurance agent who has enough knowledge about bonds to be dangerous tells the contractor ..."$70,000 bond .. go for it, how difficult can it be to get that" .. so, contractor bids and lo and behold can't get a bond through his insurance agent. So, he now may lose bid deposit. Believe me, I understand priorities, but I also understand someone's back being up against the wall.
Then, after the immediate problem is solved either by getting a bond or getting out of the job, comes part 2) let's get you set up for bonding .... here is what we need, here is what you need to do, etc.


"By the way Evans, who are you employed by? We appreciate all of the input you have posted on our forum. Please feel free to start a new thread for discussion or continue on another at anytime"

McDonalds .... just kidding ...

[Admin]

I was just kidding about ridiculing, etc... some forums, you basically post and duck!!!!! I like this forum a lot, I am glad I stumbled on it.

I know what you mean about some online forums, people can get pretty intense and rude when it comes to online discussions. This is something that will not be tolerated on this board. The purpose is to educate some and discussion among professionals. We are glad you stumbled upon the board as well, tell your friends!

Why a couple of years back and not now? Hey, I agree, this is not going to make anyone rich, and may end up wasting time ... however, I think you can get a feel for how cooperative the contractor is going to be, and I think you can explain the facts of life -- letter of credit format, cost, needed cooperation ... and see the reaction. He starts balking or the bank starts balking, so be it .. NEXT....

A couple years back the market wasn't so conservative. In fact, we wouldn't even need the letter of credit. However, if a client did need collateral to write the bond it would not be as problematic as it is in today's market. You must keep in mind, not only is the letter of credit going to be a pain in the rear for all involved, it will also scare away certain sureties. I know of accounts that qualify for a 15 million bond line, but are limited to a case by case basis. Why? Because their previous agent trashed their corporate name by shopping it around when they weren't as strong. They were trying to obtain what they didn't truly qualify for. Now they do qualify, but any underwriter that can approve it keeps away strictly due to the name. I am always keeping the current needs of a contractor in mind as well as future. Obtaining a letter of credit is something many underwriters will shy away from for a bond this small and I wouldn't want to have to shop around the account and get them known as an account that doesn't qualify for anything.

The current bond market is requiring agents to think for the overall needs present and future for each client. You must keep in mind, in this small industry almost everyone knows everyone in some way and word travels fast.

I think you misunderstood what I meant ... I am not saying let's get letters of credit on every bond and for forget getting you bondable, what I am saying is we have two problems that need to be solved ... 1) the immediate bond need .. whether we like it or not, they bid a job and need a performance bond ... sometimes it is not their fault .. sometimes an insurance agent who has enough knowledge about bonds to be dangerous tells the contractor ..."$70,000 bond .. go for it, how difficult can it be to get that" .. so, contractor bids and lo and behold can't get a bond through his insurance agent. So, he now may lose bid deposit. Believe me, I understand priorities, but I also understand someone's back being up against the wall.
Then, after the immediate problem is solved either by getting a bond or getting out of the job, comes part 2) let's get you set up for bonding .... here is what we need, here is what you need to do, etc.

I agree it may not be their fault, there is tons of bad advice out there. However, the bid spread on a bond this small can not be that great. I think the potential loss on the bid is worth not risker a greater loss in the future. Best to make the account look as strong as possible from the start. If that means losing one job to be able to obtain bonding for larger future jobs then so be it, it is in everyones' best interest.

McDonalds ....

McDonalds huh? It just so happens I am the head fry guy at Burger King! j/k

[builditmatt]

It seems to me that if you can cover the bond amount with cash, there shouldn't be any problem getting a bond written. It is zero risk for the bonding agency.
I was surprised by the fact that jwsuretybonds.com doesn't mention this option. It simply states that, if you have bad credit, you should repair your credit. Wouldn't this be a legitimate option for someone who has the means and experience to do the job but made some bad financial decisions in a personal matter completely unrelated to their work?
Matt

[Admin]

builditmatt,

While it is true, 100% collateral will usually get the job done, it is not always a sure shot. Some bonding companies will not write some principals even with the full amount of collateral (Most will, but not all).

We do not like to turn away business, but we refuse to give our clients poor advice. Posting 100% collateral on a bond is a poor financial choice if the obligee will accept alternatives to the bond (usually a letter of credit). Otherwise, the principal will be paying fees for the bond and the letter of credit. We only recommend 100% collateral alternatives when absolutely necessary, which does happen from time to time.